Believe At Your Own Risk
by P.J. DiNuzzo December 29, 2018
Believe At Your Own Risk
We're about to enter that exciting time of year when all sorts of market predictions are made by people who are mostly claiming that they knew the future and have accurately predicted it over a great track record. If you're smart, you'll turn off the TV or move on to the next article.
The truth is that none of us can accurately predict the movements of the markets. If we could, then we would always make trades ahead of market moves, and it wouldn't take long before that amazing prognosticator with the working crystal ball would have amassed billions off of his or her stock market trades. Have you read about anybody doing that lately?
Most of these people are employed at think tanks or sell their predictions to credulous investors. Would they need that salary check or your hard-earned subscription dollars if they had the ability to make billions just by checking the 'ol crystal ball a couple of times a day?
A recent article by frequent blogger Barry Ritholtz offers some rather amazing data on people in the prediction business. You may know that the cryptocurrency known as "bitcoin" is now worth about $3,500-way WAY down from the start of the year. So how well did the people in the prediction business foresee that downturn?
Not well. In his article, Ritholtz noted that Pantera Capital predicted that Bitcoin would be selling for $20,000 by the end of this year. Tom Lee of Fundstrat was more bullish, forecasting that bitcoin would breach $25,000 by now. Prognostications by Anthony Pompliano, of Morgan Creek Digital Partners, were still more bullish, predicting bitcoins worth $50,000 by the end of this year. John Pfeffer, who describes himself online as "an entrepreneur and investor," anticipated $75,000 bitcoins by now, and Kay Van-Petersen, Global Macro-Strategist at Saxo Bank, one-upped everybody with his prediction that bitcoins would be worth $100,000 by December 31 of this year.
Ritholtz offers other examples, like radio personality Peter Schiff telling listeners since 2010 that the price of gold has been riding toward $5,000 an ounce. (It's riding around $1,200 currently.). Jim Rickards, former general counsel at Long-Term Capital Management, is more ambitious, telling his followers that he has a $10,000 price target for an ounce of gold.
If you happen to follow former Reagan White House Budget Director David Stockman, you have been told that stocks are going to crash in 2012, 2013, 2014, 2015, 2016, 2017, 2018 and 2019. Someday he's going to be right, and will no doubt be touting his amazing prediction abilities.
When you read about a prediction, instead of reaching for the phone to call your financial advisor, try writing the prediction down on a calendar or reminder program like the app www.followupthen.com, and come back to it a year later. Chances are you'll be less impressed then than you might be now.
P.J. DiNuzzo, CPA, PFS, AIF®, MBA, MSTx
President, Founder, and Chief Investment Officer